IFI governance

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UN calls for human rights accountability

Community appeals in Kazakhstan and Nicaragua

17 June 2008

A UN report says the World Bank’s investment arbitration facility is at odds with the protection of human rights. The CAO has found that the IFC violated its own standards in Kazakhstan, and a new complaint has been lodged against an IFC-funded sugar company in Nicaragua; accountability for human rights violations are at the centre of both cases.

In an April report, following nearly three years of consultations, UN Special Representative on human rights and transnational corporations John Ruggie, says that so-called ‘stabilization clauses’ found in many investment contracts (see Update60) can make it difficult for host states “to strengthen domestic social and environmental standards, including those related to human rights, without fear of foreign investor challenge”.

Making matters worse, such investor challenges occur under arbitration processes that are conducted in strict confidentiality, often failing to alert the public in the country facing a claim. Ruggie calls on “institutions supporting investments” to develop arbitration procedures which better “balance investor interests and the needs of host states to discharge their human rights obligations”. This is a direct challenge to the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID), a tribunal which rules on cases against governments brought by foreign investors (see Update56).

The report calls on export credit agencies to require clients to perform adequate due diligence on their potential human rights impacts, though fails to make the same demands of multilateral private sector financiers such as the Bank’s International Finance Corporation (IFC). While the IFC has produced a set of guidelines for companies on how to conduct human rights impact assessments (see Update57), these have little status as they are not integrated into the IFC’s performance standards (IFC-specific substitutes for environmental and social safeguards, see Update50) that are supposed to be a contractual requirement on borrowing companies.

The UN Human Rights Council has responded positively to Ruggie’s report, agreeing to a three-year renewal of his mandate. However, what UN member states have asked him to do falls short of what NGOs have been seeking, which is more emphasis on closing regulatory gaps and on removing barriers to access to justice faced by victims of corporate abuse.

A submission to Ruggie by a group of NGOs including the Center for International Environmental Law (CIEL) condemns the IFC’s performance standards on human rights grounds. Using the Danish Institute’s human rights compliance assessment methodology, the NGOs find that the standards fail to address many critical human rights issues or do so in a way that does not meet international norms and standards; they do not provide an adequate framework for human rights due diligence; and they do not specify an adequate grievance mechanism. The submission urges Ruggie to build on his current mandate in the next phase by assessing ways for the IFC to embed human rights standards and rights-compliant procedures and accountability mechanisms into its financing requirements.

Violations: CAO

The Compliance Advisor Ombudsman (CAO) has found that the IFC is out of compliance with its own safety standards for toxic emissions at the giant Karachaganak oil and gas field in western Kazakhstan (see Update45). The IFC provided $150 million in loans to the international consortium behind the project which comprises British Gas, ENI/Agip, Chevron and Lukoil.

Local residents have suffered respiratory, nervous system and skin ailments, caused by extremely high levels of hydrogen sulphide emissions. The CAO found the monitoring programme and smokestack emissions data “insufficient in order to verify compliance with IFC requirements”.

Equally worrying was the CAO finding that “the production-sharing agreement governing the project does not reference IFC requirements” and that “there are only limited signs of IFC guidelines influencing the monitoring programmes”. The IFC responded that it had “refrained from formally introducing [its guidelines] as a requirement” even though “we may have referred to them in our practice.” The CAO scolded the IFC for failing to mention this to the Bank’s board or to the public. Kate Watters, of NGO Crude Accountability, said “the IFC has violated Kazakhstani legislation, international standards and its own regulations.”

In March, Kazakhstan’s supreme court ruled in favour of environmental NGO Green Salvation in a precedent-setting lawsuit under the terms of the Aarhus Convention (an instrument of the United Nations Economic Commission for Europe (UNECE) on access to information, public participation in decision-making, and access to justice in environmental matters). Citing corporate confidentiality, the statistics department of Western Kazakhstan had denied the NGO’s requests for information about emission levels at Karachaganak. The supreme court found that the authorities’ refusal had violated both the Aarhus Convention and national law.

None too sweet

A complaint has been submitted to the CAO by local residents of León and Chinangeda states and former employees affected by the operations of Nicaragua Sugar Estate Limited (NSEL). Issues raised include: health problems, union busting activity, air and soil pollution, groundwater depletion, and harassment of whistleblowers. In late 2006, the IFC provided a $55 million loan to finance expansion of NSEL’s production and processing of sugarcane, including the construction of an ethanol plant.

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